Microsoft added a key piece to its flagging mobile operating system business Tuesday when the company announced it is buying voice and video communications provider Skype Global for $8.5 billion. Despite heavily hyping its Windows Phone 7 operating system late last year, Microsoft has struggled to gain traction against Apple's iPhone as well as against smart phones running Google Android. Both iPhone and Android offer more apps and more advanced features such as video chat.
Luxembourg-based Skype could take care of the video-calling deficiency, a need made urgent by the success of the iPhone's FaceTime and Android's Google Talk applications. Skype claims to have 170 million worldwide users of its video conferencing software.
Microsoft's Skype acquisition "will be fundamental to getting Windows Phone to the next level in terms of marketplace acceptance," Microsoft CEO Steve Ballmer said during Tuesday's press conference to announce the deal. Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.
Microsoft plans to add Skype's voice and video capabilities to the Lync, Outlook, Messenger, Hotmail, Xbox LIVE and Kinect platforms. Ballmer and Bates were short on details but made assurances during the press conference that Microsoft would continue to support Skype on non-Windows platforms, such as Apple's Mac OS.
Ballmer announced at this year's Consumer Electronics Show (CES) that by midyear Microsoft would expand Windows Phone 7 availability beyond AT&T to include phones offered by Sprint and Verizon. And despite having only 5,500 applications available for Windows Phone—hardly on par with the tens of thousands accessible to users of iPhones or Android-based handsets—Ballmer assured the CES crowd that more than 100 new apps enter the Microsoft fold daily.
Even with these efforts to shore up its smart phone business, Microsoft has struggled not only against primary competitors Google and Apple but also against second-tier offerings such as Samsung's bada mobile operating system. In the first three months of this year Samsung shipped nearly 3.5 million bada-based smart phones, outpacing total shipments of Windows Phone devices by more than a million units, according to a report issued last week by research firm Canalys.
Skype has already changed hands twice since its founding in 2003. Online auctioneer eBay bought Skype in September 2005 for $2.6 billion but sold the company four years later for $2.75 billion to an investment group led by Silver Lake. Skype had been on a path to launch an initial public offering when Microsoft made an unsolicited offer to buy Skype for more than three times what Silver Lake originally paid.
Image courtesy of Darren Baker, via iStockPhoto.com